Major Leasehold Reforms Announced with Ground Rent Cap
The government has unveiled significant reforms to the leasehold system, announcing that ground rents for leaseholders will be capped at £250 per year. This measure represents a substantial boost for millions of property owners across England and Wales who have been grappling with escalating ground rent charges.
Details of the Ground Rent Cap
Under the new regulations, ground rents will be limited to a maximum of £250 annually. Furthermore, after a period of 40 years, these payments will reduce to a peppercorn rate, which is a nominal amount typically meaning nothing in financial terms. The changes are scheduled to come into force from 2028, providing a clear timeline for implementation.
The reforms are part of the government's broader Commonhold and Leasehold Reform Bill, which is due to be published imminently. In addition to the ground rent cap, the legislation will introduce a ban on new leasehold flats, while existing leaseholders will gain the right to switch to the commonhold system, offering greater ownership control.
Impact on Leaseholders and Pension Funds
The government estimates that approximately 900,000 leaseholders will benefit from these changes during the current parliamentary term. With five million leaseholders in England and Wales, this reform addresses what has been described as a dysfunctional and unfair system that has placed financial strain on many households.
Addressing concerns about potential impacts on pension fund investments, the National Leasehold Campaign (NLC) has highlighted that less than 1% of total UK pension fund assets are invested in residential ground rents. The Department for Levelling Up, Housing and Communities has indicated that any negative effect on pension funds would fall within normal investment and depreciation tolerances.
Political Context and Industry Response
The Labour Party government has positioned these reforms as a crucial step in overhauling what it views as an outdated leasehold system. Labour MP Justin Madders recently warned that the government would face significant internal opposition if it attempted to dilute the proposed leasehold reforms, indicating the political importance of this issue.
Former housing secretary Angela Rayner emphasised the significance of these changes in a recent opinion piece, describing the struggle to cap ground rents as a "titanic battle" against faceless companies that have profited from what the NLC characterises as "money for nothing."
The NLC has further argued that ground rents represent a recurring financial burden that creates stress, anxiety and insecurity for homeowners, with the UK Competition and Markets Authority noting that such obligations are neither legally nor commercially required.
